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July 29, 2013

Forget $1 Million. To Feel Wealthy, You Need $5 Million in Assets

HNW and affluent investors tell UBS what it takes and what it means to be considered wealthy

High-net-worth and affluent investors define wealth as being able to live life with no financial constraints, and feel $5 million is the minimum needed to be considered wealthy, according to the recent UBS Investor Watch, a quarterly survey.

The survey of 4,450 investors found that 69% of those with more than $1 million in investable assets did not consider themselves wealthy.

Half of respondents defined wealth as having no financial constraints, while only 10% said it meant never having to work again and 9% said it was being able to afford a luxurious lifestyle.

While the ability to afford healthcare and long-term care was the top personal concern for 27% of investors, 20% said their children’s and grandchildren’s financial situations were most important, 14% listed the ability to afford retirement and 14% the potential to outlive their assets.

The survey found that 82% of respondents most enjoyed financially helping their grandchildren, 76% their adult children and 59% their parents. Two-thirds of those with adult children ages 18 to 39 currently supported them financially.

Twenty-three percent of investors continued to hold high levels of cash, and used these holdings as a way to reduce their risk level.

“Investors are using significant cash holdings as a type of ‘security blanket’ to give themselves peace of mind, but also to allow them to feel comfortable getting out there and participating in the market again,” Emily Pachuta, head of investor insights at UBS Wealth Management Americas, said in a statement.

“This has translated to a greater confidence—and faith—in the economy over the long term despite investors’ expectations of continued market volatility in the near term.”

Eighty-five percent of respondents said they felt more confident when their financial plan was dedicated to long-term healthcare expenses and to providing financial support across multiple generations. Confidence dropped to 57% with a more traditional financial plan.

Investor Watch found that 80% of investors thought about their assets as different buckets, with varying risk/return profiles, based on their expected use, such as savings, necessary purchases and recreational spending.

Respondents viewed the Fed’s ending stimulus as positive for the long term, albeit with a short-term negative effect. Fifty-nine percent said they were not changing their investment strategy as a result of the Fed’s announcement.

Other key findings include:

67% of investors said they believed the economy was strengthening, and 60% said their long-term economic outlook was bright;

56% found the idea of a 5% constant return highly appealing for the next 12 months, while 40% found this highly appealing for the next 10 years, indicating long-term return expectations remain higher than 5%;

33% were highly prepared for long-term care planning, while 36% were not prepared.